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Michael May Have To Fight for Dell

Both Blackstone and Icahn have reportedly submitted tentative offers

Both the Blackstone Group, the big private equity house, and the indomitable activist investor Carl Icahn met Dell’s midnight deadline Friday to express interest in the company, setting the stage for a bidding war against Michael Dell and his partner, the Silver Lake Group.

Both are working on firm bids that would have to be superior to the $36.65- a-share proposition already on the table. They have until Tuesday.

It’s rare for a public equity house to jump another’s claim.

Both Blackstone and Icahn have reportedly submitted tentative offers. According to Bloomberg Icahn is offering $15 a share and proposing that existing shareholders be allowed to keep their positions to go along for the ride. It would lower the total cost of the acquisition.


Michael Dell personally addressed Cloud Expo New York delegates by video, June 2011

The Wall Street Journal says Blackstone, which wants further discussions with Dell’s board, is reportedly offering somewhere between $13.65, the initial bid, and something reportedly short of $15. It is said to be considering selling off Dell’s $3.5 billion Financial Services unit to GE Capital to finance the acquisition. Blackstone would also invite other shareholders to join.

Blackstone is apparently considering leaving part of the company public in what’s called a “stub LBO.” Blackstone would get control.

The Journal calculates that if 20% of Dell remained public buying the rest would only cost $21 billion but leave it to still file quarterly reports with the SEC – which is supposedly not a great idea for the company at this point – at least according to Michael – because of Dell’s cut in projections.

Dell will reportedly confirm any offers Monday. It’s unknown if it got any others.


Dell was Diamond Sponsor at 8th Cloud Expo | Cloud Expo New York 2011

Michael may not have a job if Blackstone succeeds in recruiting Oracle president Mark Hurd to be CEO although Bloomberg said Blackstone was only interested in lining up Hurd if a deal with Dell can’t be cut on friendly terms and it can’t get Michael’s cooperation. That might mean Michael has to switch loyalties. The Wall Street Journal says Blackstone has also approached former Compaq CEO Michael Capellas, the guy who sold it to HP.

Michael is contributing roughly $4.5 billion in cash and stock to the Silver Lake deal, which amounts in toto to $24.4 billion. He may have to scratch up more gelt or vote his 16% as the board recommends. Michael’s deal involves borrowing close to $14 billion and getting a $2 billion loan from Microsoft.

The Journal says Blackstone approached Southeastern Asset Management about kicking in its 8.4% stake in Dell. According to Reuters Southeastern was originally interested in joining the Silver Lake consortium and keeping its position but later turned hostile to the LBO, saying it undervalued the company. It said Dell is worth $21 a share.

It will lose around $400 million on its current position if the buy-out goes through as outlined. However, the Journal says it is back to weighing its options, particularly the idea of a stub LBO.

Both Blackstone and Icahn have had access to Dell’s books.

A proxy is anticipated soon detailing the Dell-Silver Lake offer and how they came to the price of $13.65 a share.

Dell closed Friday at $14.14, suggesting the stock market continues to expect a higher price.

Michael and Silver Lake will get a $180 million break-up fee if Dell backs out of their deal.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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